Business Risk Climbs with Climate Activity

At this time, there is no federal requirement in the US either from EPA, SEC or FASB for quantification, liability analysis or disclosure specific to GHG emissions.  Yet there is a growing tidal wave of such corporate disclosures.  But in developing the reports and emissions quantities, the corporate internal PR and environmental functions appear to be diverging from risk managers and insurers.  More information is available to highlight concerns that companies should evaluate when considering calculating and publicly reporting greenhouse gas (GHG) emissions.

Dan Reynolds, senior editor of Risk & Insurance,® wrote a piece July 6, 2009 on insurers view of and developing responses to recent events in the US surrounding GHG regulation.

Along with the Environmental Protection Agency’s April ruling that greenhouse gases are pollutants that endanger public health, the climate change bill passed by the U.S. House represents new ammunition for plaintiffs’ attorneys, and those companies they target better have insurance policies that can absorb or fend off the legal salvos.

Reynolds compared the GHG developments to how tobacco liabilities evolved, but that GHG liability is likely to occur “ on a far larger scale”.  Although a legal case concerning GHG would probably require that a scientific connection be established between emissions and climate changes, there is a significant amount of research underway right now to bolster the connection and support the legal argument.

In the article, David Orleans, a San Francisco-based vice president for Willis Group Holdings Inc. stated

A lot of people are paying a lot of experts today, engineers and environmental scientists, to provide better connections and show what they believe (to be) the direct causation between the emissions and the incidents of natural disasters.

Further, he indicated that the carriers are close to coming out with policy exclusions for GHG/climate related potential claims.

Yet in the face of the developing liabilities and insurance exclusions, many companies appear to be rushing to publicize their GHG emissions in the absence of technical emissions measurement consensus or legally established parameters.  CNN ran a story on a few well-known companies who are on the cutting edge of assessing and disclosing their CO2 emissions.  Previous articles on Elm’s blog have discussed potential emerging liabilities associated with CO2 emissions/climate change reporting and quantification, while highlighting other studies and company reports.

What should companies do about GHG emissions calculations and reporting?  There is no single solution, and the business context of each is critical to determining the best strategy.  However, a few key items PR and environmental staff who are involved in developing the reports should do include:

–       Assess the wide array of potential risks associated with disclosing GHG information as well as not doing so

–       Work closely with Risk Management departments to determine how insurance coverage may respond or be impacted in various liability scenarios

–       Carefully evaluate contractors used for emissions calculations and evaluate the technical aspects of their methods

–       Investigate what liability may exist in the event errors are made in the calculations or reporting.

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